Data confirm that investors around the world continue allocating capital to environmental, social and governance (ESG) exchange traded funds, bringing some validation to a corner of the ETF universe that's still small in terms of total assets but growing in population.
Last month, ESG ETFs listed around the world added $2.8 billion in new assets, boosting the total assets under management tally by almost 8% to $47.33 billion, according to ETFGI, a London-based ETF research firm.
That news comes on the heels of a Benzinga report noting that in the U.S., there are six ESG ETFs with $1 billion or more in assets.
The largest ESG ETF in the U.S. is the iShares ESG MSCI USA Leaders ETF (NYSE: SUSL). SUSL, which tracks the MSCI ESG Leaders Index, has $1.60 billion in assets. Another fund that tracks the same benchmark, the Xtrackers MSCI U.S.A. ESG Leaders Equity ETF (NYSE: USSG), has almost $1.5 billion in assets and is the third-largest ESG ETF in the U.S. Both SUSL and USSG debuted earlier this year.
Why It's Important
“Since the launch of the first ESG ETF/ETP in 2002, the iShares MSCI USA ESG Select ETF, the number and diversity of products has increased steadily, with 253 ESG ETFs/ETPs listed globally at the end of September 2019,” according to ETFGI. “In September, 5 new ESG ETFs/ETPs were launched.”
Adding to the growth trajectory of ESG ETFs is issuers' willingness to take the concept beyond domestic stocks. Said another way, the number of ESG funds with fixed income and international equity exposure is booming.
Emerging markets are included in that equation. For example, the Alpha Architect Freedom 100 Emerging Markets ETF (CBOE:FRDM), which tracks the Life + Liberty Freedom 100 Emerging Markets Index, debuted in June. That was a well-timed launch because FRDM features no exposure to China, meaning the fund has proven somewhat durable to trade tensions since inception.
FRDM measures a variety of civil, economic and political freedoms and has returned about 6.4% since coming to market.
The iShares MSCI USA ESG Select ETF (NYSE: SUSA) is another example of a thriving international ESG ETF. In September, that fund hauled in $848.55 million of its $1.05 billion in assets, according to ETFGI.
For now, it appears as though ESG ETF growth will be driven by investors outside the U.S. ETFGI date indicate that in September, 15 of the top 20 ESG ETFs in terms of net new assets were listed outside the world's largest economy.
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